Kevin Warsh: “No Firm Should Be Too Big To Fail”

The debate over Ben Bernanke’s reappointment, and his approach to the financial system, may after all have had some impact.  In a speech yesterday, Kevin Warsh – the Federal Reserve Board Governor who liaises between Ben Bernanke and financial markets – signaled a major change in Fed thinking regarding “too big to fail”.

Warsh was much blunter than we have heard from the Fed in a long while: “Moral hazard in the financial system is higher than any of us should countenance”; “eradicating the too-big-to-fail problem should be the predominant policy goal”; and “in the new regime, no firm should be too big to fail.”

At some level, Warsh and his colleagues are finally learning the main lesson of 2008-09.

“We need a system in which insolvent firms fail. Market discipline only works if governments can demonstrably and credibly commit to allow firms to fail. This system isn’t just about giving government officials better options on Sunday nights. It is about making sure that market discipline is operative in the prior months and years to avoid altogether the proverbial Sunday night judgments.”

But there is still a major problem in the Fed’s thinking.

Warsh is right that market dynamics could be helpful.

“Market entry and market exit can be a more effective means of developing a stronger, more resilient financial system. The too-big-to-fail problem could be mitigated if smaller, dynamic firms seized market share from less nimble incumbents”

And he is completely on target with the respect to the principle at stake.

“Competition is undermined when a privileged class of financial firms has the implicit support of the government. No firm ought to be entitled to favored consideration by regulators or government policy. No rating agency. No mortgage finance entity. No dealer or underwriter. And no bank. The tempting top-down approach to level the playing field is to bully or co-opt our largest, most interconnected firms. In my view, however, robust competition from the bottom-up is the better way forward.”

But he stops short of calling for a restriction on the size of our largest banks.  Without that, it is very hard to see how his competitive mechanisms will work.

The current low relative cost of credit for mega-banks – significantly below what is paid by smaller banks that can fail (i.e., banks that can realistically be taken over through a FDIC intervention) – constitutes a form of unfair subsidy that enables the biggest banks to become even larger.

How exactly does Mr. Warsh plan to back away from this situation?  He implies we should promise not to help huge banks when they get into trouble – but surely he knows this would not be credible.

He also makes some vague statement about helping smaller banks, but how does that work when the big banks now dominate the markets at the center of our financial system?

While the US financial system has a long tradition of functioning well with a relatively large number of banks and other intermediaries, in recent years it has become transformed – through years of regulatory and antitrust neglect – into a highly concentrated system for key products.  The big four have 1/2 of the market for mortgages and 2/3 of the market for credit cards. Five banks have over 95% of the market for over-the-counter derivatives. Three U.S. banks have over 40% of the global market for stock underwriting.  This degree of market power is dangerous in many ways.

As Mr. Warsh now realizes, these large banks are widely perceived – including by their own management, creditors, and government officials – as too big to fail.  The executives who run these banks obviously have an obligation to make money for their shareholders.  The best way to do this is to take risks that pay off when times are good and that result in bailouts – creating huge costs for taxpayers and all citizens – when times are bad.

This incentive system distorts market outcomes, encourages reckless risk-taking, and will lead to serious trouble.   While reducing bank size is not a panacea and should be combined with other key measures that are not yet on the table – including a big increase in capital requirements – finding ways to effectively reduce and then limit the size of our largest banks is a necessary condition for a safer financial system.

The Fed is apparently, at last, moving the right direction on the issue of “too big to fail”.  But how long will it take to get there?

By Simon Johnson

55 responses to “Kevin Warsh: “No Firm Should Be Too Big To Fail”

  1. Krugman still confidently disagreeing that TBTF is an issue (at least a crucial one). Celebrity economist deathmatch? That would be a debate I’d have to watch.

    http://krugman.blogs.nytimes.com/2010/01/30/worthwhile-canadian-example/

  2. William J. Raduchel

    I think a simple rule would have a remarkable prophylactic effect: the directors and executive officers of any institution accepting a bailout must resign and are ineligible to be an executive officer or director of any financial institution for five years. Upon such a resignation, all nonvested incentive compensation is forfeited, and any incentive compensation paid or equity compensation gain received in the prior twelve months must be repaid. Institutions fail only because their management and boards fail.

  3. Bernanke, Warsh, and company must take the lead on bank reform. The political fix is in in Congress, and by “fix”, I mean campaign contributions are being hoarded, solicited, and offered like never before. The Fed must stay out of that swamp and do the right thing, here.

  4. But he stops short of calling for a restriction on the size of our largest banks. Without that, it is very hard to see how his competitive mechanisms will work.

    That’s why Yves Smith tore this fool a new one yesterday. It gives the lie to every word he said.

    (Naked Cap seems to be down right now or I’d link it.)

    How exactly does Mr. Warsh plan to back away from this situation? He implies we should promise not to help huge banks when they get into trouble – but surely he knows this would not be credible.

    Yes, we know “resolution authority” is a scam. No matter how extravagant the a priori plans were on paper, we know they’d be thrown out the window in the crisis, superseded by panic and disaster capitalism.

    Like with the PCA law, the dog that didn’t bark. When it’s an inside job, all the laws and rules in the world mean nothing.

  5. Yes, heads should roll.

  6. Isn’t this the same Kevin Warsh that wrote the original “Break the Glass” proposal that became TARP?

  7. Whenever a proposal to raise taxes on some product or service is made, claims arise that the taxes will shrink the industry or force it to go overseas. Is this a clue to the solution to the large bank problem? Maybe tax is easier to enforce than regulation?

    The backers of HR 4191 (http://www.govtrack.us/congress/billtext.xpd?bill=h111-4191) seem to think that such taxation of Wall Street might help the US treasury but do the proposed taxes of 0.25% for stock contracts and 0.02% for derivatives contracts also encourage industry downsizing?

    How has the estimate of a $150bn tax take been calculated? This bill may be even more important from a UK view where the annual volume of derivatives contracts traditionally is larger than in the US and $150bn of tax revenue would be even more helpful.

  8. Paul Solman (Newshour) quotes Simon in his Q&A interview with Robert Kelly (BNY Mellon) this past Tuesday: “The scholar Simon Johnson, formerly with the IMF, MIT now, Peterson Institute: “No study can find economies of scale above $100 billion. On this, the experts agree,” he writes.” Mr. Solman then asking ”Why not cap the size of any bank at say 1 percent of GDP?” Mr. Kelly believes the TBTF paradigm is sustainable, producing better products outcome ‘at the end of the day’; however, within the framework of “more capital, more liquidity, better regulations, and windup authority”: Video and transcript: http://snipurl.com/u9rs3

    Good eating through politics, too: http://www.nytimes.com/2010/02/02/health/02brod.html

  9. So simple yet powerful. Unfortunately, the era of personal responsibility is still some way off. Individual execs and political leaders are never personally responsible.

  10. ProgressiveChange

    Agreed .. which is why folks should move their money as fast as possible to community banks and credit unions to shrink the big guys and reward the more consumer-friendly financial services operators.

  11. excellent comment. why don’t you send your idea to someone who has some authority to make decisions? It is great idea.

  12. I think this was the interview where it was claimed that big banks add great value to their customers with ATMS, home banking, call centers, etc. The reality is that all those capabilities he mentioned existed before the acquisitions of the late 90s. In fact, the California acquisitions that created big banks were responsible for decisions that set back the computer capabilities about 15 years at exorbitant cost (20 to 30 times the hardware and system software costs) while diminishing the capabilities.

  13. Won’t work. Here’s why:

    All management decisions today are made in the interests of management. So if you were a senior manager, which would you chose:

    Choice A) Give up the reins to the government, get bailed out, and ruin my future high earning potential for the good of the economy.

    Choice B) Hide the dire straits of the company for as long as possible (remember Lehman? Remember Enron?) until the institution abruptly and unexpectedly collapses, and destroys the global financial system. I can still get a job–failure is no obstacle to executive job searching.

  14. I would love to see a walk-through of the scenario where several big banks are allowed to fail and the impact on the overall economy. The supporters of “let them fail” should be required to so do.

  15. Will they next figure out that usury and worthless high leverage derivatives are also bad?

    If so, so what? Can anyone depend on them to actually do anything about these factors, much less new bad practices that the looters will develop if the old become obsolete?
    These guys are stupid and slow.

  16. It doesn’t matter if they fail. Banks will just bring us down in a depression and blame the citizens for an economic downturn. Then want an unjust war to ‘pull us out of a depression’. In which we should crash their system and coin our own money like Abraham Lincoln did. then money will belong to the public and no bank can monpolize currency and get to this point again.

  17. If banks were required to downsize so that they were small enough to be allowed to go bankrupt, so what?

    Why should looter management care?

    In that new environemnt, they can still devise methods to shift wealth from the bank to themselves (bonuses, phony deals, etc.) until the failure, and then they walk away and watch news stories about bank failures, and spin their cover stories at the appropriate times.

    Why is downsizing supposed to solve looter / casino problems? Becasue shareholders and boards are so perceptive and ready to act?

  18. I think the argument against Krugman’s position is although better regulation could have prevented THIS financial meltdown, we can’t rely on it to anticipate all potential catastrophes. Given enough time, eventually regulators will miss something, no matter how good they are, what power they have, etc. Combine this with the fact that TBTF institutions remain a huge liability, and that the existence of them does not provide much (if any) value to society/economy/whatever, then it is only an improvement to eliminate them.

    Regulating perfectly is imposssible; simply regulating well allows the oppurtunity for another crisis. Eliminiating TBTF gets rid of a disaster scenario explicitly possible (and likely if regulation doesn’t remain high caliber) in the Canadian regulation approach. Unless someone shows solid arguments against the process and result of eliminiting TBTF, it comes out as the better option.

  19. they wouldn’t be able to loot and fail at such a grand scale. Toast a couple small banks and the system can deal. Fry BOA or Citi and the walls come down, or so they say.

  20. Agreed.

    And wasn’t it reported by Bloomberg around the time executive compensation limits were being considered for TARP receipients that many of the very executives whose banks were about to be rescued did not want to take TARP funds because they didn’t want their earnings limited? I don’t know how much of that was a front, gossip or serious pushback against the federal govt, but if they’re willing to sacrifice the U.S. (global?) economy for their own compensation interests, I don’t think pay-me-back laws will have any preventive effect here whatsoever. Honestly, I think they’d rather lay off 75% of their workforce and wait out the crash/depression.

  21. The point is, the new smaller banks will form interlocking deals, and be counterparties with each other, and then the system is back to failing on a large scale during the next debacle. A bunch of smaller banks will have to be bailed out.

    The real problem is lack of tight regulation and allowing high leverage gaming with “instruments” that nobody can understand and that are *designed* to facilitate looting.

  22. In total agreement with you. The reader’s reccomended comments is worth are worth a read too
    http://community.nytimes.com/comments/krugman.blogs.nytimes.com/2010/01/30/worthwhile-canadian-example/?sort=recommended

    E.g. role of bailouts/veiled bailouts a la AIG, role of consumer protection more critical than bank size, etc.

  23. I’d still pay good money to see the debate. Imagine the issue framed before the US public with PK at one end, SJ at the other. Instead we get Obama at one end, Palin/Glenn Beck at the other.

  24. When they break up Citibank, Wells Fargo, and Bank of America, into 20 or 30 pieces and force the bondholders to take the loss instead of the taxpayer, I will start believing they are (possibly, conceivably) sincere. Until then, it is all hypocrisy, lies, smoke and mirrors, fair lies and deceit for the crowd, lulling us into complacency by promising, oh yes, next time will be different. Right. Watch what they DO not what they say.

  25. No, they are corrupt and dishonest, lying hypocrites.

  26. Believe me, I’d pay good money too. Someone really needs to get on setting these sorts of things up.

  27. Right, the entire business model is basically flawed. The only thing a bank with FDIC insurance should be allowed to invest in is US Treasury Bonds.

    The only thing a bank with a limited liability corporate structure should be allowed to invest in is US Treasury Bonds.

    Any other bank should be an unlimited liability partnership. And using leverage, of any amount, should be criminalized. If you lend out money you don’t have, you go to jail. It is fraud.

  28. Valerie Gagnon

    I have also been reading Krugman’s arguments against TBTF and his reference to the Canadian example. Being a Canadian, I feel particularly victorious to see that our banking system survived the latest disaster however I wonder if one can really draw parallels between the two countries. It appears to me that what save Canada from a financial economic breakdown is not only it’s banking structure and how it is regulated but as much note worthy in my view is Canada’s parliamentary governmental system.
    I would love to hear from anyone who would have the kindness to enlightened me.

  29. Here’s a walk through of Citibank being allowed to fail, and then it’s assets sold off to the highest bidders in an open auction.

    1) A lot of people and institutions that have citibank stock would wake up and see that they had lost all of the money they had invested in it. Boohoo. I bet they will be more careful next time they are stupid enough to speculate in the stock market.

    2) A lot of people and institutions that have Citibank bonds would wake up and discover that their bonds were now worth maybe 10 or 20 cents on the dollar. Boohoo. I bet they will take a good hard look at the business model of the next company they lend money to.

    3) All of Citibanks assets will be marked down to fire-sale prices and sold to banks or individuals who were more prudent (or more lucky).

    4) The upper management and board of directors of Citibank will have plenty of spare time to write their memoirs. One hopes sincerely they spend much of that time behind bars after being convicted of fraud, and that all of their ill gotten gains from the last 10 years are clawed back as fraudulent conveyance, and payouts on civil suits from outraged shareholders and bondholders.

    5) The unencumbered ASSETS of Citibank, now in the hands of more careful owners, will be used to make careful prudent loans to creditworthy borrowers.

    6) The share prices and bond prices of Bank of America, Wells Fargo and many other insolvent companies will drop to their true value (zero, or near zero).

    7) The FDIC will lower it’s subscription rates from member banks.

    8) Outraged shareholders will rise up and demand better accounting standards and personal unlimited liability from upper management and members of the board of directors.

    9) America avoids a Japanese style “lost decade”.

    10) Pigs fly.

    The problem is steps 1, and 2, and 6. As long as your elected representatives are corrupt, as they so evidently are, those three steps will completely trump the real benefits to the economy (and the financial system) of letting the “Too Big to Fail Banks” fail.

    Because they aren’t really “Too Big To Fail”. They are “Too Rich, Too Politically Connected, Too Willing To Bribe To Fail”. TRTPCTWTBTF.

  30. Too bad the Federal Reserve is the official lobbying arm of the Association of Wall Street Banks, and Bernanke is their chief lobbist and shill.

  31. Hey, what’s wrong with usury? Why should usury get a bad name out of this? When you cap interest rates all you do is deny credit to people who are risky borrowers.

    If someone is willing to borrow money at 30% interest, and someone else is willing to LEND him the money, THIS IS A GOOD THING. You know, econ 101 – a willing buyer and a willing seller.

    The thing that is bad are DECEITFUL interest rates. Not high interest rates.

  32. The closest analogy to Walsh’s speech that exists is when a embezzler or a robber is dragged into court and earnestly tells the judge “I’ll never do it again, honest”. Which is true – if you never give him the chance to do it again.

    You know what they call someone who lies for a living? A crook.

    Walsh is either deluded or a bald faced liar. Who cares which on it is. But since his lies are extremely useful to him personally, and even more useful to the institution he serves, let’s assume the more embezzler case. He is a bald faced liar, standing before the court of public opinion, the defrauded America people, and letting off the opening salvo in the campaign to deceiver the American people that next time will be different.

  33. I don’t care how many banks make up the top of financial food chain, be it one or one thousand, a systemic crisis can take them all down in the first wave, and that would be a disaster for the taxpayer. There is no way to slice and dice your way to managing systemic risk. Being small is not an immunity.

    You only think it takes them one at a time because of how big the top-of-the-food-chain entities are now – in the current experience. If the ToFC (TBTF) entities are all small, they are just as susceptible to systemic risk.

    Systemic risk is best handled by the Geithner approach. Be ever vigilant. Make vigilance that regulator’s only job. De-politicize the call on a systemically important entity, make the call, and then kill the TBTF entity with a well-funded resolution authority that is refunded by the non-secured creditors, the common shareholders, and, if need be, a fee on all financial institutions.

  34. Before we get to smug, there is a huge pool of securitized mortgages NOT on the Canadian Mortgage and Housing Corp books but remain liable since CMHC insures them. Please note that mortgages by chartered banks (via CMHC) are guaranteed by federal govt hence no risk by banks. The guarantee is a subsidy from the taxpayer. As well in 2008/9 govt bought mortgages from banks to free up their capital. Some analysts say the CMHC guarantees are near one trillion $. If and when our housing bubble bursts the taxpayer is stuck and banks unscathed.

  35. I think you missed the core part of the argument about TBTF. It is that systemic risk is caused by a few big financial institutions taking too much risks – because that is the way they can freeride on the fact that they are TBTF. The freeride is “heads I win, tails you lose”, the more risk you take, the more you win (or the more taxpayers lose, but that is Someone Else’s Money).

    Small banks taking those kinds of risk do not benefit from Guaranteed Government Bailout, and thus if they take excessive risk they are punished via their cost of capital. That is the market working.

  36. Mervyn King, the Governor of the Bank of England, told MPs today (Jan 26th) that the best way to reform multinational banks was to force them to divide into national subsidiaries that can be shut down in the event of a future failure.

    Is this suggestion from last week a good starting point for breaking up the effective size of those banks that have major operations outside the US?

    http://business.timesonline.co.uk/tol/business/economics/article7002962.ece

  37. Perfect!

    I call the current paradigm “Survival of the best connected.”

    I’m anxiously awaiting return to “Survival of the fittest” – once the American populace wakes up for real.

  38. There’s ample evidence that they hide their usurous rates behind deceit, and all through history, usurers who prey on desparate people have been hated and often outlawed.

  39. I think Krugman’s argument is that controlling bank size won’t help to guard against financial crashes that require enormous bailouts. IIRC he’s been saying that it’s more that the banks are too interconnected than that they’re too big. If you break the big ones up the now more numerous smaller banks are liable to crash simultaneously leaving us with essentially the same problem. I think that’s what he’s argued, isn’t it?

  40. Yeah Canada. Don’t get too smug. We can always invoke the “Blame Canada” option.

  41. ” a few big financial institutions taking too much risks ”

    A critical problem that revealed itself early in this last crisis is how these banks have been selling and dealing among themselves in complex relationships. If one looks like it’s going to fail, all the banks it has deals with also freeze up.

    In the last debacle, you needed a large conference room to get the looters sitting around the table.

    If you break them all up, and let them continue dealing phony high leverage “instruments” that facilitate ever more creative looting schemes, you’ll need an auditorium to get the looters together in conference with the Fed /Treasury.

  42. Without knowing the first dang thing about banking, finance or economics it still occurs to me that all this angst and creative thought is misdirected. I’m thinking that the solution to the bailout moral hazard has been obvious from the beginning of the crisis. If several large banks are on the brink of collapsing, thus bringing down the entire economy, nationalize them!

    Ignoring the political difficulties, would this be feasible as policy? Would the money that the treasury or whatever put into TARP and the rest of the bailout suffice to recapitalize Goldman, BofA, etc if they were put through a fast bankrupcy, ala General Motors (I’m totally over my head)? I understand that a big giant wad has also come from the Fed in the form of something they call QE. Could those resources have been used as well to keep capital flowing? Or could the government have just opened up a big B of the US and kept everything from grinding to a halt while the so called TBTF’s were put through proper bankrupcy procedures? Was this ever feasible as policy?

    Because if it was, then all of this how-can-we-control-the-big-banks handwringing is because we didn’t, because that would have put the fear of God in them (so to speak). So can we now establish procedure for doing just that in the future?

  43. TBTF: the ONLY real solution this nation is ever able to produce within its mercantilist construct ala a political oligopoly is “busting them up”. Whether the “them” has been Telcos, Oil Trusts, Rail Trusts what have you. We all sit like dumbfounded children at the circus watching “freakshows” we know can not be “real” yet we are paralyzed by our own lack of will. America is great because of its people and their ability to act on their collective will- freely. Until we snap out of our collective stupor and reassert said will, the backdoor bailouts will continue apace and the people in control of the center ring attractions will continue to bark and spin their carny tricks.

    Vermalet

  44. Hence the collapse of Bear Stearns – they were holding everyone’s money,they were every TBTFs prime broker and they were envied for it.

  45. It’s the disparity between rates charged to member banks, based on size, which (a) creates, as you point out, an unfair subsidy, but even more importantly (b) does not strengthen a move toward recovery. Let’s face it, if the smaller banks were the ones receiving the break on rates, they would likely use the money for lending (to their traditional customers, i.e. individuals and small business primarily), whereas, if the larger banks were charged higher rates, this would generally lead to a more responsible leveraging posture, and the development of a more substantial reserve philosophy. Most of all, to change things, the Fed should make it clear that no financial institution of any size will ever qualify for a bailout, period!!!!!

  46. An economist from a major bank recently argued that other industries have companies that are too big to fail as well. I would think that is true for the oil industry and climate change , too big to seriously divest from fossils. Also the defense contractors and the endless wars. Now we’re fighting armies funded by the drug trade, spending ten times what our rivals spend on defense. And what about big insurance and the end of the public option, too big for a public option, option. They’re all part of a too big to fail cabal.

  47. Reading Andrew Sorkin’s book its hard to disagree with this, but also hard to underestimate the lengths this will drive bosses/boards to in not disclosing problems.

  48. Please tax me too with this too big to fail tax!

    As an Executive Director of the World Bank during a risk management conference in 2003 I told the regulators “Knowing that the larger the banks are the harder they fall on us if I were a regulator, I would be thinking about a progressive tax on size”. A tax of 15 basis points on assets more than $50bn, is not what I had in mind. 15bp for what seems to be the right of officially being termed too big to fail, clearly earning a triple-A rating is ludicrous, most small businesses or entrepreneurs, would gladly pay much more if given the chance.

    To understand the magnitude of the tax we might use how the bank regulator seems to value the difference between an ordinary fallible business and a triple-A rated entity. When lending to the first, a bank is required to have 8 percent in equity while when investing or lending to anything related to a triple-A rating it is only required to have 1.6 percent. Supposing the cost of bank equity is 5 percent more than the cost of deposits, then the previous difference of 6.4 percent in equity amounts to a cost difference of 32 basis points; and which strangely enough the regulator feel should benefit those already benefitted by being perceived as having low risks and affect those already affected by being perceived as more risky.

    How much less would a bank deemed as too big to fail be required to pay for its funds when compared to the rest of the humanly fallible banks? If we are to tax the too big to fail banks is it not supposed to hurt them instead of benefiting them?

  49. Too late. They now have no political will to change it. They should have embraced this during the height of the crisis.

  50. I agree with no firm should be too big to fail but I have one exception. “The NFL” , that is one I would say should be too big to fail. There might not be a 2011 season while the owners and players fight over money:

    http://americaspeaksink.com/2010/02/superbowl-sunday-the-bacon-explosion/comment-page-1/#comment-3945

  51. So a Stamp Duty like tax on all Derivatives trading might be a better catch all? Is the world ready to impose this globally? I see the HR 4191 is proposing 0.02% with some exceptions. http://www.govtrack.us/congress/billtext.xpd?bill=h111-4191

    I favour this approach because even if TBTFs are broken up and there is some better regulation a la Volcker, the traders will still be addicted to trading derivatives so there would be a constant stream of tax revenues to national treasuries in countries where the biggest gambling is located, USA and UK today, but Asia catching up fast.

    However is 0.02% flat too low to generate enough revenues to properly compensate taxpayers?

  52. I read Warsh’s comments with dismay. He seemed to be paying lip-service to the need for structural changes and rules of the road changes for finance, but he rejected all proposals currently on the table and declined to propose any changes himself. It looks like political ju-jitsu to me. Using the force of the opponent to throw him off balance.

  53. Is the tax to stop the too big to fail or to compensate the tax payers? On the first I am okay on the second I am not… because the best way for banks to help compensate for what they’ve done (assisted or even instigated by the regulators) is to fulfil better their role in helping to finance the economic growth… that shall then be taxed.

  54. In principle I would agree but the financial crisis arose from the new unregulated and over leveraged shadow banking system which was primarily funded by wholesale markets. This is a very fragile ecosystem as taxpayers found out to their cost. The primary weapon of choice for these players is derivatives. Taxing derivatives trading would have little or no effect on the normal commercial low risk form of banking I think you mean. This small PDF might help explain: http://bit.ly/brlPo5

    WRT to TBTF: Mervyn King, the Governor of the Bank of England, recently suggested that the best way to reform multinational banks was to force them to divide into national subsidiaries that can be shut down in the event of a future failure. Seems like a good start to me.

    http://business.timesonline.co.uk/tol/business/economics/article7002962.ece

  55. For this financial crisis, I think this applies to insurance companies.

    Wasn’t part of this crisis due to so much of the CDS’s being sold all being insured by AIG in combination with FDIC backed deposits? And at the same time, AIG was also facing big losses from natural disaster (Katrina, perhaps the Asian Tsunami), and who know what else. One insurance company with it’s hands in so many economic pots that its failure would lead to the whole system failing?